The AICPA has endorsed legislation designed to block any proposal
from the U.S. Department of Labor (DOL) that would change the
definition of “fiduciary” as it applies to the valuation of employee
stock ownership plans (ESOP).

The DOL in recent years has sought to expand the definition of a
fiduciary under the Employee Retirement Income Security Act (ERISA) to
include independent appraisers of ESOPs. Such a change would pose a
significant conflict of interest for CPAs who perform ESOP valuations,
the AICPA says.

The AICPA expressed its support of bills S. 273
and H.R.
2041, which would block any such change, in a July
10 letter to members of Congress. Accountants who perform
valuations for ESOP plans, in particular, are keeping a close eye on
the legislation. That’s because there are more than 10,000 ESOPs in
the United States and each of them is required to obtain an
independent and objective valuation for annual reporting requirements
of the DOL and the IRS.

“If the DOL were to redefine an ERISA fiduciary to include ESOP
appraisers, an inherent conflict would arise between the DOL and IRS
requirements for ESOP appraisers,” AICPA President and CEO Barry
Melancon, CPA, CGMA, wrote in the letter. “An ERISA fiduciary must act
solely in the interest of plan participants and their beneficiaries
and therefore cannot provide an independent, third-party objective perspective.”

“The DOL has not demonstrated a need for such a broad and
far-reaching change from more than 35 years of established policy,”
Melancon wrote. “The DOL proposal is a draconian response to a very
small number of deficient ESOP appraisals.”

The DOL withdrew its proposal in 2011, but has announced that it
plans to repropose a similar rule later this year.

The AICPA suggests that, rather than expand the definition, as
proposed by the DOL, rules should be implemented to ensure that only
qualified individuals prepare valuations for benefit plans and that
those individuals be required to follow recognized valuation
standards.

If adopted, the DOL’s proposed change would have a significant
negative impact on ESOPs, according to J. Michael Keeling, president
of The ESOP Association.

“First, appraisers would have to, assuming that they continued to
engage in appraising ESOP stock, buy fiduciary insurance, a market
that does not currently exist,” Keeling wrote in an email response to
questions. “In the real world, the extra costs would be passed on to
the ESOP companies.”

He added that many current appraisers would decide not to continue
conducting ESOP appraisals because of new risks that would be created
by the potential change. And he fears that the conflict of interest
inherent in making appraisers fiduciaries would increase the threat
that ESOPs face from litigation.

TAX NEWS

President Barack Obama signed legislation that retroactively extended more than 50 expired tax provisions for 2014, allowing taxpayers to take advantage of a host of tax incentives during this filing season.

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